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The primary query most traders ask once they see a FTSE 100 dividend share yielding nearly 10% is whether or not it’s sustainable.
Arguably, it’s a rhetorical query. The idea is that it isn’t. Too many double-digit yields have met their maker. The largest of all of them, Vodafone Group’s 10.28% stonker, might be slashed in half subsequent 12 months.
So once I began constructing a stake in wealth supervisor M&G (LSE: MNG) final autumn, I approached its ultra-high yield with excessive warning. The M&G share value efficiency wasn’t a lot to tempt me, having floundered since being spun off from Prudential in 2019.
High revenue inventory
But that almighty yield proved irresistible. Particularly since I assumed there was likelihood the share value would recuperate as soon as undervalued UK shares like this one lastly bought a re-rating.
I used to be proper concerning the dividend. M&G paid me a bumper £408.27 on 5 Might. I instantly used it to purchase extra shares within the inventory, which is able to hopefully pay me but extra dividends in future.
For some time, I used to be celebrating the rising M&G share value too. At their peak, my shares have been climbing properly however then went into reverse. So I’m again the place I began, share-price-wise (though I get to maintain that dividend).
I’d hoped for higher. Particularly with M&G posting a 28% enhance in full-year 2023 earnings to £797m on 21 March. Markets knew they’d be good, guessing at £750m, however not that good.
M&G turned a £2.1bn IFRS accounting loss right into a £309m revenue earlier than tax, because it delivered “meaningful improvements across key financial metrics”. The share value jumped on the day, however since then it’s all been downhill. Whereas the FTSE 100 rallied to new all-time highs, this inventory went the opposite approach. So what went fallacious?
Fairness market restoration play
Fortunately, the dividend hasn’t been reduce. Nonetheless, the entire 2023 payout of 19.7p was elevated by only a tenth of a penny from final 12 months. Personally, I assumed that was wonderful, given the dimensions of the yield, but it surely does counsel a sure caginess on behalf of the board.
I feel the opposite challenge is all the way down to the market moderately than M&G. As rates of interest look set to remain greater for longer, so do yields on money and bonds. This implies traders can get an honest charge of revenue with out worrying concerning the impression of share value actions on the capital.
This has hit different high-yielding dividend shares in my portfolio, notably Authorized & Common Group and Phoenix Group Holdings. So it’s not simply M&G.
M&G may very well be a worth lure, however I don’t suppose so. I believe traders will look extra favourably on its outsize revenue potential when rates of interest peak, and yields on money and bonds retreat. Price cuts must also enhance international inventory markets, boosting the group’s buyer inflows and web belongings beneath administration. When this occurs, M&G might get pleasure from slightly bull run of its personal.
Even when this rosy situation doesn’t pan out, I’m nonetheless getting a bumper yield. Assuming it holds. I feel it’ll however, as ever, there aren’t any ensures.
